This week saw the launch of the third round of talks on the EU-US free trade agreement (TTIP). Gabriel Siles-Brügge and Ferdi De Ville challenge the proclaimed benefits of this much-vaunted trade agreement, saying the deal is a distraction and it will unlikely boost growth.
Gabriel Siles-Brügge is lecturer in Politics at the University of Manchester. Ferdi De Ville is lecturer at the Centre for EU Studies of the University of Ghent.
"This is the cheapest stimulus package you can imagine.” Or: “This is a once-in a generation prize and we are determined to seize it.” With such bombastic language being used (respectively) by Karel De Gucht and David Cameron to describe the Transatlantic Trade and Investment Partnership (TTIP), the stakes are high for the third round of free trade talks between the EU and the US. These began on Monday 16 December and continue until the end of the week.
While critical voices have raised concerns about ‘a treaty that would let rapacious companies subvert our laws, rights and national sovereignty’ so far less has been said about the overblown economic arguments in favour of the agreement. Policymakers and politicians are wont to quote the headline figures that the TTIP will yield €545 of extra annual disposable income for a family of four in the EU (but only by 2027, which is rarely mentioned in the official rhetoric).
These figures come from an impact assessment conducted by the European Commission. This in turn draws on economic simulations into transatlantic trade, undertaken at the Commission’s behest by ECORYS and the Centre for Economic Policy Research (CEPR). We argue that it is precisely these simulations that are on pretty shaky ground.
Rather than the elimination of tariffs it is the scrapping of non-tariff barriers (NTBs) in goods and services that promises to deliver most of the economic gains from the agreement. In other words, the gains from the TTIP will largely derive from eliminating restrictions to trade that arise from the different ways that the EU and the US regulate their economies.
The calculations are premised on the assumption that ‘100 per cent of tariffs, 25 per cent of goods and services NTBs and 50 per cent of government procurement restrictions will be eliminated’. This is, however, a highly optimistic assessment, for at least two reasons.
Firstly, the Commission’s impact assessment notes that only 50 per cent of total NTBs are even ‘actionable’, defined as anything ‘within the reach of policy to [address]’. Eliminating 25 per cent of NTBs suddenly looks a whole lot harder; it means that the TTIP would have to eliminate half rather than just a quarter of existing policy-based non-tariff restrictions to trade.
In light of the history of EU-US transatlantic cooperation, which has so far yielded only a patchy record of cooperation in the sphere of economic regulation, this is a tall order. After all, what the TTIP is seeking to do is to align the way in which the EU and US economies are regulated, which is often an extremely politicised area.
As a result, EU and US standards are poles apart in some domains. Take the prominent example of Genetically Modified Organisms (GMOs). Their sale is extremely restricted in the EU due to the reliance on the ‘precautionary principle’ while ‘science-based’ assessments of risk in the US mean that they are widely available there. Similar differences in the approach to regulation also plague the chemical sector, one of the key beneficiaries of the TTIP.
Of course, in a number of areas standards and regulations are broadly seen as comparable. Car safety standards might be different but accomplish much the same, uncontroversial task. But even in these cases, the TTIP faces the additional hurdle of multiple and overlapping jurisdictions over regulatory matters that characterise the US federal system. Such things as emissions standards for cars (as well as many other aspects of the regulation of the economy) vary between US States. Whether US trade negotiators, which represent the federal government, will be able to come up with a ‘coherent’ package in the context of the TTIP remains to be seen.
This brings us to our second line of critique. The study’s predictions for gains from NTB liberalisation finds that the gains are very much dependent on whether all sectors are liberalised. In their words, ‘sector inter-linkages strongly affect the results’. The ‘total gains’ from NTB elimination are around four times larger than the ‘sum of sectoral parts’. In other words, unless there is liberalisation across the board (which is unlikely given a number of problem sectors as noted above) the gains from the TTIP are likely to be much smaller than hypothesised.
All this leads to the conclusion that pushing for trade liberalisation is not the silver bullet to our economic woes that policymakers and politicians would have us believe it is. To rephrase economist Paul Krugman, the current obsession with free trade is a distraction, and a dangerous one at that.
A version of this opinion was first published on the Policy Blog of the University of Manchester.